Hedge Fund Regulation


While nobody I’ve spoken to in Germany thinks Barack Obama’s appeasement is going to lead to Russian domination of the continent, several people have expressed the view—commonly heard from French and German officials—that they’re very perturbed by the fact that the Obama administration hasn’t yet acted to stiffen regulations on hedge funds.

Certainly that was the view of the panel we heard from yesterday at the Deutsches Aktieninstitut, a kind of in-house think tank for German firms interested in capital markets. The strange thing about this is that while I agree this should be done (and in fact I believe the administration’s proposals address this point) it’s very hard to understand the centrality they’re giving it since as best I can tell hedge funds simply didn’t play a major role in bringing on this crisis. When I put that point to the panel, they pointed to the fact that a substantial number of hedge funds have gone under in the past 18 months. But this it seems to me points in the other direction—hedge funds that have made bad bets have failed largely because they’ve been allowed to fail; unlike other forms of financial institutions it’s deemed acceptable to let them fail. The institutions we really need to worry about regulating are the ones that we don’t intend to let fail. That’s where the really bet one-sided bets with privatized profits and socialized losses are taking place.